Medicaid waivers allow states to spend billions on social needs

By Kara Hartnett / January 23, 2024

State Medicaid programs are bargaining with the federal government to cover some of the costs of non-medical care for high-risk patients in a bid to narrow health disparities and reduce long-term spending. 

Earlier this month, New York became the most recent state to receive a Section 1115 Demonstration waiver from the Biden administration. Such waivers grant Medicaid agencies certain flexibilities under federal law and expanded funding opportunities to test programs that could reduce negative health outcomes for enrollees and lower costs.

In New York's case, the state Medicaid agency received approval from the Centers for Medicare and Medicaid Services to use up to $7.5 billion in state and federal matching funds to pay for a range of health-related social needs such as transportation and housing, build out the infrastructure for regional social service networks, facilitate the transition to value-based care and launch a population health data tracking entity. Since 2022, seven other states—Arkansas, Arizona, California, Massachusetts, New Jersey, Oregon and Washington—have received CMS approval to implement similar initiatives.

Other states have received waivers covering some of the same kinds of services under previous presidential administrations. For example, CMS in 2018 approved North Carolina's Healthy Opportunities pilot program, which covers transportation and nutrition services for high-needs Medicaid enrollees. 

The new Medicaid waivers go further, however. They expand the list of non-medical supports covered, authorize direct funding for social services and create financial incentives for providers serving low-income and underserved communities. The Biden administration is also requiring Medicaid agencies to sustain provider payment rates rather than reduce them to offset costs spent on social services. Instead, CMS has capped health-related social needs expenditures to 3% of states' total Medicaid spending. 

Nine states, including North Carolina, have pending waiver requests with CMS to incorporate similar coverage of social services into their Medicaid programs. 

When it comes to addressing social needs, “CMS is pushing the boundaries," said Elizabeth Hinton, associate director of KFF’s Program on Medicaid and the Uninsured.

The Empire State's waiver

Under New York's waiver, which authorized $7.5 billion in state and federal matching money through March 2027, the agency approved up to $3.2 billion to cover housing, nutrition, transportation, behavioral health and other non-medical services for high-needs Medicaid beneficiaries.

To be eligible, enrollees must meet certain criteria, which will be fleshed out in future guidance, CMS wrote in its letter approving the Medicaid waiver on Jan. 9. Qualifying individuals may include those with substance use disorder, serious mental illness and intellectual and developmental disabilities, along with those experiencing homelessness, pregnant people, those released from the criminal justice system and children.

Among the states that have already negotiated 1115 waivers with the Biden administration, the Empire State got approval for the broadest coverage of health-related social needs, Hinton said.

Within the waiver, New York also received authorization for $2.2 billion to develop the Medicaid Hospital Global Budget Initiative. Along with creating financial incentives for improving population health and health equity, the initiative will serve as a value-based payment arrangement for financially distressed nonprofit hospitals, where at least 45% of patients are on Medicaid or are uninsured, located in the Bronx, Kings, Queens and Westchester Counties.

Additionally, CMS authorized up to $694 million for statewide workforce recruitment and retention programs, including student loan relief for healthcare professionals in underserved areas. It approved $500 million to build out nine regional social care networks in New York that will screen Medicaid beneficiaries and work with managed care organizations to connect them to available resources.

CMS also authorized $125 million for a statewide Health Equity Regional Organization, which will conduct population health data analysis and develop regional needs assessments that focus on reducing health disparities, supporting value-based arrangements and creating performance benchmarks for the Medicaid program. The organization will collaborate with social care networks to standardize data collection and integrate findings into value-based payment methodologies.